Employment Law Basics for Small Business Owners

Even when they aren't planning to hire anyone for the first few months of operation, small business owners should understand the basics of employment law. If appropriate policies and procedures are set into motion from day one, there is much less chance of future legal problems.

Employees vs. Independent Contractors

Deciding whether you want to hire employees or contractors is not an arbitrary decision you should make based on whether or not you want to provide said worker with benefits. The IRS sets forth specific rules to help small business owners determine whether a worker is an employee or a contractor, and it is important to apply those rules accurately.

The most basic difference between an employee and an independent contractor is that the latter has much more freedom within his or her job description. A small business owner or manager controls when an employee shows up for work, in what order he performs certain tasks, how he operates when on the clock and when he signs off for the day. Independent contractors make those decisions for themselves.

When small business owners hire independent contractors, they are exempt from many aspects of employment law. The owners don't have to take taxes from workers' paychecks (contractors handle that themselves), and they don't have to provide benefits, overtime pay and other "perks" of employment.

Again, however, it is important to make sure that a contractor's job description fits those rules set by the IRS.

Overtime Pay

Small business owners must keep meticulous records about the hours employees work. If a single employee works more than 40 hours in a given work week, according to the Wage and Hour Division of the U.S. Department of Labor, he or she must receive one and one-half times his or her normal hourly wage for those hours.

There are exemptions to this aspect of employment law. Certain outside sales, creative, executive and administrative professionals do not have to be compensated for overtime work, but they must meet the standards set forth by the Department of Labor, including salary requirements.

Employees with Disabilities

The Americans with Disabilities Act protects employees who might suffer from physical or mental disabilities in your workplace. Small business owners with more than 14 employees must provide all disabled workers with equal employment opportunities. This means that you cannot consider a disability as a factor when hiring, promoting, paying or otherwise managing all workers.

Additionally, the ADA introduces anti-discrimination employment law on the whole. Small business owners should develop their own anti-discrimination policies to comply with those federal standards so that all employees and potential employees are made aware of them.

Required Postings

Under certain state and federal laws, small business owners may be required to post warnings or notices in conspicuous places on business property. For example, a manufacturing plant might have required postings related to hazardous materials and dangerous equipment. It is extremely important for small business owners to comply with this area of employment law.

In fact, it is not unreasonable to over-comply. Display the required postings, then give each employee his or her own copy of the postings. Make sure all employees are aware of any dangers in the workplace, and conduct safety seminars on a regular basis to keep employees informed and up-to-date on safety policies.

Employment law is a large area to cover for small business owners. Consequently, many entrepreneurs hire attorneys or legal advisers to help them maintain compliance.